Pre-emptive Action for Retirees: Essential Steps Before Collecting Social Security Benefits in 2025
Optimising Social Security Benefits: A Guide for Claiming at the Right Time
Making the decision about when to claim Social Security benefits can be a complex process, as it depends on various personal factors. Here's a breakdown of the key considerations to help you make an informed choice.
Age, Health, and Life Expectancy
Your Full Retirement Age (FRA) determines when you can receive 100% of your Social Security benefits, which ranges from 66 to 67 depending on your year of birth. Claiming before your FRA reduces your monthly benefit (up to 30% less), while delaying benefits past your FRA up to age 70 increases them (up to 8% per year or about 24% more by 70) [1][3][4]. If you expect a shorter life expectancy or have health issues, claiming earlier may maximise lifetime benefits, as you'll start receiving payments sooner. Conversely, if you expect to live longer, delaying can yield larger lifetime benefits due to increased monthly payouts over more years [1][2].
Financial Needs and Resources
Immediate financial needs or lack of other income sources might push you to claim early. However, having sufficient resources to delay benefits could increase your future income significantly [1]. It's essential to evaluate your financial needs before claiming Social Security benefits, as this will help determine the right time to begin receiving benefits. By comparing your expected expenses with the money you'll receive from Social Security and other sources, you can determine if there is a gap between the two or if you'll have plenty of money coming in.
Marital Status and Survivor Benefits
Couples may strategise claiming to maximise survivor benefits or combined household income, taking into account spousal benefits and caregiving roles. If one spouse has earned significantly less than the other, the lower-earning spouse may benefit from claiming Social Security based on the higher-earning spouse's work record. In such cases, the lower-earning spouse can receive up to 50% of the higher-earning spouse's full retirement age benefit [1].
Employment Status and Earnings
If you continue working before claiming, income limits might affect benefits if you claim early. Waiting might avoid benefit reductions due to excess earnings. If you work until age 70, your spouse will still receive up to 50% of the benefit you would have received at Full Retirement Age.
Tax Implications
You may have to pay federal taxes on your Social Security benefits depending on your adjusted gross income (AGI). Additionally, the way states calculate taxes on Social Security benefits varies dramatically by state, so it's important to research how your state taxes benefits.
Diversifying Income Streams
If you do not have enough income sources, it may be worth considering diversifying your revenue streams by investing in real estate, a real estate investment trust, annuities, or dividend-paying stocks.
In conclusion, determining the best time to claim Social Security is an individual decision based on personal factors like age, health, financial needs, and goals for retirement income. The key tradeoff is between receiving reduced benefits early versus larger benefits by delaying up to age 70 [1][3][4]. It's crucial to research and plan carefully to ensure you make the decision that best suits your unique circumstances.
[1] https://www.ssa.gov/planners/retire/ [2] https://www.aarp.org/retirement/social-security/info-2019/social-security-benefits-life-expectancy.html [3] https://www.investopedia.com/terms/s/social-security-early-retirement-penalties.asp [4] https://www.forbes.com/advisor/investing/social-security-benefits/when-to-take-social-security-benefits/ [4] https://www.ssa.gov/planners/retire/10_things_every_woman_should_know_about_social_security.html
Personal finance plays a crucial role in decision-making during retirement, as it influences when to start receiving Social Security benefits. For instance, delaying benefits past the Full Retirement Age (FRA) can increase monthly payouts, thereby improving one's personal-finance situation in the long run.
Making informed choices in personal-finance management can significantly impact the amount of money received during retirement, especially if one has adequate resources to delay benefits, leading to increased income in the future.
